For months, Americans have been subjected to a sort of economic water torture _ a maddening drip of bad news about jobs, gas prices, sagging home values, creeping inflation, the slouching dollar and a stock market in bumpy descent.
Then came Bear Stearns. One of the five largest U.S. investment banks nearly collapsed in a single day before the government propped it up by backing emergency loans and a rival stepped in to buy it for a paltry $2 per share.
To the drumbeat of signs that seemed to foretell a traditional recession, this added a nightmarish specter _ an old-style run on the bank, customers clamoring to pull their cash, a stately Wall Street firm brought to its knees.
The combination has forced the economy to the forefront of the national conversation in a way it has not been since the go-go 1990s, and for entirely opposite reasons.
As economists and Wall Street types grope for historical perspective _ which is another way of saying a road map out of this mess _ Americans are nervously wondering about retirement savings, interest rates, jobs that had seemed safe.
They are surveying the economic landscape and asking: Just how bad is it?
They are peering over the edge and asking: How far down?
And the scariest part of all? No one can say for sure.
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Even before the crippling of Bear Stearns, the U.S. economy was acting as a slowly tightening vise _ an interconnected web of factors combining to squeeze Americans from all sides.
Take Jaci Rae of Salinas, Calif. She runs a company, Luco Sport, that sells golf bags and accessories. The merchandise is made with foam, which is based on petroleum, so record oil prices have taken a heavy toll.
On the other end, her clients are feeling the pinch, too, and cutting back. Sales to retail clients are an eighth of what they were a year ago. So Rae had to cut five of her 20 employees loose.
Now the company isn't buying products as far in advance. With gas prices running high, she waits for shipping companies to pick up products from her headquarters instead of having an employee drop them off.
She is nickel-and-diming expenses at home, too. She eats in every night, has stopped going on road trips to visit her family, dropped her satellite dish and canceled her monthly Blockbuster movie rental.
'I want to make sure I have enough money to feed my family,' Rae says.
Signs of the pinch are showing up everywhere:
_By the end of 2007, 36 percent of consumers' disposable income went to food, energy and medical care, a bigger chunk of income than at any time since records were first kept in 1960, according to Merrill Lynch.
_People are treating themselves less often. The National Restaurant Association says 54 percent of restaurants reported declining traffic in January, and the government says eating at home increased last year for the first time since 2001.
_Financial planners say that more than ever, parents are calling for advice on how to deal with grown children who have moved back in with Mom and Dad after losing a job or just to save money.
_Less trash is being set on the curbs of Mesa, Ariz., where surging home foreclosures are leaving more houses empty. That means fewer homeowners paying the city $22.60 a month for pickup. And William Black, the city's solid-waste management director, says people aren't throwing out as many appliances and bulk items, like furniture. They're sticking with what they have.
On top of an economy that was already groaning under the weight of a downturn, Bear Stearns came down like an anvil.
It tied together so much of what's wrong with today's economy _ the housing crash, the credit crunch and a loss of confidence among investors and consumers alike.
Understanding how things got so bad means rewinding to the start of the housing boom. Wall Street and the banks made it far easier for people with shaky credit to get a mortgage _ known as a subprime loan.
Investors wanted a piece of the fast-growing mortgage pie, so there was plenty of money sloshing around the market to pay for the loans.
Financial firms sliced up the mortgages and sold them as complex investments, finding eager buyers among pension funds, hedge funds and more who were chasing higher returns and willing to overlook risks.
As long as housing prices went up, the strategy worked. When they began to crumble, so did financial stability.
The same people who made a financial stretch to buy their homes are now defaulting on the loans at alarming rates. Many are 'upside down' on their loans, meaning they owe more on their mortgages than their homes are worth.
Nearly 9 million households now have upside-down mortgages, and for the first time ever, aggregate mortgage debt is bigger
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